USD/MXN hits lowest since Monday under 19.50

• Mexican peso recovers as equity prices rise across the globe. 
• US Dollar corrects lower against Emerging market currencies. 

The Mexican peso rose against the US Dollar on Thursday and recovered some of the weekly losses. It is still trading lower compared to last week levels. The improvement in global market sentiment boosted the correction. 

The USD/MXN broke below 19.50 and fell to 19.44, the lowest level since Monday and as of writing was trading at 19.46, consolidating losses. From a technical perspective, a close under 19.45 would alleviate the bullish pressure, favoring an extension of the correction. The next strong support lies at 19.30. 

On the upside, if the pair climbs back above 19.50 it could likely continue to trade in the 19.50/19.75 range. A break above 19.80 would clear the way to more gains. Some consolidation is seen before another potential leg higher toward the 20.00 area. 

Banxico meeting next Thursday

Risk aversion across financial markets continues to be the key driver of the pair but next week in Mexico, the central bank will meet and could be crucial and relevant for the Mexican peso. 

Most analysts see no change in the key interest rate but the focus is on the signal for the future. Officials at the Mexican government are hoping for a change to a dovish stance, opening the doors to a rate cut. 

“We see Banxico holding steady on rates at the August meeting, as underlying inflation dynamics continue to evolve in an unconstructive manner, in the face of non-convergent inflation expectations, driving upwards revisions to our own Mexican inflation forecast”, wrote TDS analysts. They expect to see dovish tilts in the statement play out through the growth channel, and expect the board to continue to have at least one dissent for rate cuts. 

Data released today showed the CPI fell to 3.78% in July, down from 3.95%, in line with market expectations. It is the lowest reading since December 2016.